*sigh* one more time for the slow learners:
What Are the Disadvantages of the Gold Standard?:
One disadvantage of a gold standard that the size and health of a country's economy is dependent upon its supply of gold, not the resourcefulness of its people and businesses. Countries without any gold are at a competitive disadvantage.
However, this is an advantage to the U.S., which is the world's second largest gold mining country behind South Africa. Most U.S. gold mining occurs on federally owned lands in twelve western states, with Nevada being the primary source. Australia, Canada and many developing countries also are major gold producers. (Source: National Mining Association)
The gold standard causes countries to become obsessed with keeping their gold, rather than improving the business climate. For example, during the Great Depression, the Federal Reserve raised interest rates to make dollars more valuable and prevent people from demanding gold. However, the Fed should have been lowering rates to stimulate the economy. (Source: Econlib, The Great Depression)
Government actions to protect their gold reserves caused large fluctuations in the economy. In fact, between 1890 and 1905, when the U.S. was on the gold standard, the economy suffered five major recessions for this reason. (Source: Federal Reserve, Remarks by Governor Edward M. Gramlich,, 24th Annual Conference of the Eastern Economic Association, February 27, 1998)
How Would a Return to the Gold Standard Affect the U.S. Economy?:
How a return to the gold standard would affect the U.S. economy depends on which gold standard method is proposed, and how it is implemented. For a detailed description of some of these methods, see The Cato Institute, The Gold Standard: An Analysis of some Recent Proposals.)
Returning to a gold standard, however it is done, would constrict the government's ability to manage the economy. The Fed would not longer be able to reduce the money supply by raising interest rates in times of inflation, or increase money supply by lower them in times of recession. In other words, the money supply would have to remain constant. In fact, this is why many advocate a return to the gold standard. It would enforce fiscal discipline, a balanced budget, and limit government intervention.
However, a fixed money supply, dependent on gold reserves, would limit economic growth. Many businesses would not get funded for lack of capital.
The U.S. could not unilaterally convert to a gold standard if the rest of the world didn't. If it did, everyone in the world could demand that the U.S. replace their dollars with gold.
The U.S. does not even have enough gold, at current rates, to pay off the portion of its debt owed to foreign investors. For example, China, Japan and other countries own $3.2 trillion in U.S. Treasury debt - but there is only $223 billion (at $914 per ounce) total in gold reserves at Fort Knox. (Source: U.S. Treasury Major Foreign Holdings of U.S. Debt; Office of Inspector General, Audit Report, November 2007)
Today, the U.S. economy is an important partner in an integrated global economy. Central banks work closely together throughout the world to manage monetary policy. The U.S. could not unilaterally adopt an isolationist economic stance, and abandon its ability to manage its economy using monetary policy, by returning to a gold standard.